The world will always need accountants. If you’re trained in accountancy, enjoy helping people and businesses organize their finances, and see an opportunity, starting an accountancy firm could be a good move for you.
What’s more, while the technology boom has affected traditional accounting services, it has opened a lot of opportunities for more tech-savvy accountants and accountancy firms. New accounting technologies allow accountants to provide in-depth help to clients faster and more accurately than ever before.
If you are considering starting a new accounting firm, where should you start?
Basic requirements for starting an accounting firm
Before we get into the specifics of setting up your firm, let's take a look at the basic requirements you'll need to get started:
While it is theoretically possible to set up an accounting firm as a manager/proprietor and hire accountants to do the actual accounting, it'd make much more sense if you understood accounting yourself!
The most successful accounting firms are run by people who genuinely understand and enjoy the accounting life. So ideally, you should have accountancy qualifications at a degree level or higher.
These qualifications will give you the knowledge you need to run your firm successfully and reassure potential clients that you know what you're doing.
Qualifications are not the same as experience. Having at least a few years of accountancy work under your belt is beneficial before you strike out on your own.
Again, experience is very reassuring for potential clients. It's also invaluable to call on prior knowledge when handling tricky cases.
“Most clients I encounter first ask how long I’ve been a practicing accountant. I think clients value experience because they want an accountant who can identify and stop potential wrongs before they become a major problem that could add expenses to the business. Also, an experienced accountant gives a client confidence that they can handle the growing needs of the business over time, which is the goal for every small business.” - Miles Brooks, Director of Tax Strategy at CoinLedger
An Employer Identification Number and Tax ID Number
If you plan to employ accountants, HR staff, cleaners, administrators, and so on, you will need to register as an employer. A tax number is essential for all businesses. These are easy to obtain as part of the business registration process.
The exact amount you will need to get your firm up and running depends significantly on the scale of the operation you're planning.
Setting up an accountancy firm for relatively little initial outlay is possible, especially when you use software subscription services rather than purchasing software outright.
We'll go into startup costs in more detail later, but it's worth thinking about your startup budget as early as possible in your process.
How to start an accounting firm
Let's go through what you need to do when starting an accounting firm:
Conduct market research and analysis
Market research and analysis show you the level of need for your services, gaps in the market, who your major competitors will be, and the kind of service your potential customers both want and need.
What do the people in your target area most want? Tax advise? Payroll accounting? Analytical accounts advice? Market research can reveal all for you.
Market research also helps your fledgling accounting firm to connect with new audiences and potential clients. For example, research could reveal local business networking events which you could use to promote your new business and make useful contacts.
So, don't stint when it comes to market research. Send out surveys, hold focus groups, look into local business reports, check out competitor websites and social media, and so on.
Choose an accounting specialisation
Specialising has a lot of benefits. While you'll need to thoroughly understand the basic functions of accounting, specialising allows you to cater to your own strengths and passions. In addition, it helps you to differentiate yourself from competitors, lets you move into and dominate a particular market niche, and makes you valuable to clients who want more than a generalist.
There are several accounting services to choose from. But, most fall under one of three major branches:
Every business and many private individuals need the help of a good tax accountant. Tax is a massive field with a lot of opportunity.
As a tax accountancy firm, you will need a good understanding of tax laws, the workings of tax offices like the IRS in the USA or HMRC in the UK, and so on.
If you intend to set up as a fully-fledged tax accountancy firm, there are several services you may consider offering, including:
- Tax advice
- Tax management
- International tax advice and management
- Tax analysis
- Business bookkeeping
Assurance and auditing
Assurance and auditing firms focus on fighting fraud and making sure that everything is legal and above board with accounts. Governments and large businesses often employ them to comb through a company's or individual's accounting records and check that no fraud or other deception is being committed.
Assurance firms may also provide evidence and even expert testimony when an organisation gets audited.
As an assurance/auditing firm, services you may offer include:
- Financial auditing
- Internal auditing
- External auditing
- Assurance management
- Forensic accountancy
Accountancy analytics focuses on a company's financial workings and decision-making. For example, an analytical accounting firm might use client account data to forecast future profit, advise on future spending, and create models to inform financial decisions.
As an accounts analytics company, you may offer services like:
- Financial analysis
- Finance management
- Quarterly predictions
Choose technology and information systems
As a modern accounting firm, your technology and information systems will be crucial tools. Therefore, one of the first things that potential clients will want to be assured of is that you are using top-of-the-range, secure, sophisticated, and trustworthy accounting tech.
- Expense management software: An expense management tool will let you track billable expenses, configure budgets for each project and track spend against them, and also define project rules and policies to ensure compliance.
That's not all.
As your accounting firm grows and you acquire multiple clients, an expense management system can also ensure that you don't spend hours every month sorting clients' expenses and pushing them into the accounting system.
Instead, it helps you and your clients collect receipts, approve them, and automatically push them into the client's accounting system.
“As a new accounting firm, you’ll need to be as frugal as possible with your resource. An expense management software can help you keep track of your spending across different categories like marketing, office supplies, or travel. This information can help you make informed decisions about where to allocate your resources.”
- Adam Pippington, CFO at Freedom Dividend
- Practice management software: This will help you streamline workflows, automate tedious admin, and generally keep your practice's day-to-day well organised.
- Project management software: This can help to track client accounts and ongoing tasks, manage systems, assign responsibilities, organise documents, and more. Some notable platforms worth looking into include Trello, Monday.com, Clickup and Asana.
- CRM: Client Relationship Management platforms help to keep client accounts organised and clients happy. They are also an excellent repository of client data, which you can use to keep up to date with market trends and client needs.
- Niche-specific software: You may need specialized software for your particular niche specialisation. For example, if you are planning to open a firm specializing in UK tax accounting for e-commerce, VAT accounting software will be very useful for you. If you want to go into analytical accounting, data forecasting software is a good choice.
Determine legal structure and registration
Your firm's legal structure will make a big difference in how you operate. For example, should you be a limited company? A general partnership? A corporation?
The legal structure of businesses varies around the world (and, in the USA, from state to state). But, no matter where you are, determining your legal structure is vital to registering your new firm with the proper authorities and beginning to trade.
Look into the business structures offered by the company and tax authorities where you are, and weigh up the pros and cons carefully. Then, once you have picked the structure which best suits your business model, register your business with the proper authorities.
In many parts of the world, you will need a license to operate as an accounting firm—particularly if you specialize in tax or assurance. Therefore, ensure you have all of your licenses and paperwork in order before registering your business.
Build a human resources team
To be truly successful, an accounting firm needs more than accountants. You will also need a human resources team.
The number of HR roles you need to fill depends a lot on the size of your operation. In many cases, HR software solutions can cover a lot of HR tasks alongside a few HR professionals to oversee and step in where needed. In addition, HR software can streamline operations for your HR team and handle everything from leave management to onboarding to tracking staff performance.
Larger firms, on the other hand, may need a more fully-staffed HR department.
It's more than the size of your firm that determines how many HR professionals you need.
Suppose you are dealing with a lot of sensitive information and complex protocols. In that case, you may need more HR staff to ensure everyone behaves appropriately and that company standards are upheld.
Develop a marketing and branding strategy
Marketing and branding are vital for building and maintaining a solid client base. Through a good marketing and branding strategy, you can:
- Build awareness about your accounting firm.
- Spread the word about your values, mission, and aims.
- Develop a distinctive and recognizable brand identity.
- Communicate with potential customers.
- Raise your market reputation.
- Maintain and improve relationships with current clients.
It can be tempting to market on the go, with the occasional press release or social media post as the opportunity arises. However, a comprehensive and coherent marketing and branding strategy is really a good idea. Through strategy, you can grow your business and reputation a lot faster than would otherwise be the case, with far less risk than would otherwise be the case.
The estimated cost of starting an accounting firm
The cost of starting an accounting firm depends on highly variable factors, including where you are in the world, prevailing marketing conditions, and the services you intend to offer.
Costs to consider when estimating your startup output include:
- Premises rent: If you want your own dedicated office space with employees and more, this cost will be a lot higher than if you intend to work from home or use a co-working space.
- Software: SaaS (Software as a Service) and cloud-based accounting solutions cost less initially than purchasing proprietary software outright. SaaS solutions also often come with IT support as standard, saving money on your own dedicated tech support. But, over time, you may end up spending more on SaaS than you would have on an outright purchase. Weigh your needs carefully.
- Premises overheads: Again, these will vary considerably depending on how you are operating. If you rent office space, you will need to consider hiring a cleaner, paying electricity bills, hiring parking spaces, installing branded decor, and so on.
- Recruitment: Initial recruitment can be costly if you plan to hire employees.
- Wages: Staff wages are among the highest expenses of any business. Factor all employee wages into your startup costs from the start.
- Licenses and accreditations: You may need to pay for the proper licenses and accreditations required to operate in your area.
- Branding and marketing: Branding and marketing could be as simple as setting up some pay-per-click (PPC) adverts or as complicated as producing fully branded posters, stationery, uniforms, and more. It all depends on the nature and scale of your operation.
All in all, your estimated cost for starting an accounting firm could be anything from $2000 to $200,000. That said, for most startups, it’s likely to be on the lower end of this scale!
Frequently Asked Questions
Can you start an accounting firm if you’re not a CPA?
The answer to this depends greatly on what you plan to do with your firm. For example, all CPAs (Certified Public Accountants) are accountants, but there are other kinds of accountancy that do not require a CPA certification.
The difference between a CPA and a ‘regular’ accountant is that a CPA can conduct audits and assurance services. These are valuable services but may not be relevant for your remit.
It is often a good idea to get a CPA even if you don’t plan to offer audits and assurance services, as it’s an excellent and very professional qualification. In addition, the CPA certification process will give you valuable insight into the broader world of public accounting, which may stand you in good stead during your accountancy career.
It’s also worth noting that CPA rules differ from state to state, so check out what’s required in the state you’re planning to operate.
How to price your accounting firm?
Accountancy rates vary widely. Average pricing is affected by many factors, including location, services offered, experience, expertise, and competition.
Currently, many accounting firms are choosing a fixed fee pricing structure rather than an hourly rate. This is clearer for clients and can lead to faster business growth when you calculate your profit margins correctly.
The important thing is that you are giving your clients value for money without starving your business of cash flow. Figuring out the pricing structure to achieve this isn’t always easy, but luckily, an accountancy firm is better placed than most to work out money matters!
What do clients look for when hiring an accountant?
“In my experience, clients are usually looking for someone who will listen. Someone who takes the time to teach and explain. I believe clients no longer want to just drop off their tax documents and pick up a completed return for signature. Today clients have questions they want answered, and the stories they read on Google they would like to discuss, which makes them feel heard or supported." - Wendy Barlin, CPA
Clients want a trustworthy accountant with a strong work ethic who has their best interests at heart. A proven track record of happy clients is definitely a bonus.
Word of mouth is the most common way for accountancy firms to acquire new clients, as trust and reputation play such an important part in accountancy. However, there are ways to ensure that word gets out about you and your firm. For example:
- Establish a known presence in your community through professional speaking engagements, offering sponsorships, thought leadership campaigns, and generally getting your face out there.
- Engaging with social media. When done right, social media marketing can effectively bridge word-of-mouth and a more comprehensive marketing strategy. Social media allows you to showcase your brand values and experience without being too ‘soulless’ and alien.
- Asking for referrals. Friends, family, and clients are all great places to start when gathering new clients. Ask them to spread the word!
Start your accounting firm off on the right foot
There’s a lot to think about when you start an accounting firm. But by taking note of the advice in this article, you can get your new accounting firm off to a flying start. Remember to conduct thorough market research, choose your niche, invest in the right technology, hire a good HR team, and plan your market strategy. Once you cover these bases, you’ll be ready to start building a name for yourself in the accounting world.